Gold Bulls Rejoice as the Odds of a Fed Rate Cut Rise

Gold price movement

It has been difficult to predict gold movement this year—economic reports have been more or less mixed and US-China trade deal optimism has curbed gold prices. However, as trade war jitters have returned and the US economy has had several weak economic reports, investors are looking toward gold as a safe-haven asset. Since Donald Trump’s tweet on May 5 revived trade tensions, the SPDR Gold Shares ETF (GLD) and VanEck Vectors Gold Miners ETF (GDX) have gained 3.8% and 11.3%, respectively, and the S&P 500 (SPY), Dow Jones Industrial Average (DIA), and NASDAQ Composite (QQQ) have fallen 1.7%, 1.4%, and 4.0%.

Gold Bulls Rejoice as the Odds of a Fed Rate Cut Rise

Weaker economic reports

The US jobs report for May was worse than expected, with job additions growing by just 75,000 and missing economists’ expectation of 180,000. Payroll additions for March and April were revised down substantially to 153,000 and 224,000 from 189,000 and 263,000, respectively, and wage growth also missed economists’ estimate, with average hourly earnings rising 3.1% YoY (year-over-year) in May.

US consumer price data was released today by the US Labor Department. Markets were eagerly awaiting the data for clues on the economy’s outlook and the Fed’s next moves. US CPI (consumer price inflation) rose by just 0.1% month-over-month in May, compared with 0.3% in April. YoY, the CPI rose 1.8% in May and 1.9% in April.

Fed rate cuts odds rising

Weak inflation, jobs data, and trade war jitters could encourage the Fed to cut rates sooner than expected. Weak stock market sentiment, a slowing economy, and rate cut expectations form a conducive environment for gold.